17 February 2009 External T.I. 2009-0307501E5 - Test Wind Turbine

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether a wind turbine XXXXXXXXXX will be a test wind turbine per 1219(3) of the Regulations

Position: Yes

Reasons: favourable opinion received from NRCan also otherwise meets criteria.....also purchased turbine has not yet been commissioned

XXXXXXXXXX 						2009- 030750
L. Holloway
(613) 946-3553

February 17, 2009

Dear XXXXXXXXXX :

Re: XXXXXXXXXX (the "Project")

We are writing in response to your letter of December 15, 2008, concerning your request for a determination that a planned wind turbine to be installed by XXXXXXXXXX (the "Corporation") as part of the Project will qualify as a "test wind turbine" within the meaning of subsection 1219(3) of the Income Tax Regulations (the "Regulations").

The Corporation is pursuing the development of the Project to be located on a site of approximately XXXXXXXXXX .

The Project has a planned total capacity of XXXXXXXXXX megawatts ("MW") with the initial turbine having a capacity of XXXXXXXXXX MW (referred to herein as the "Test Turbine"). The Corporation has entered into a lease agreement with the land owner where the Test Turbine is situated and an option agreement with the land owner to lease the land required to install subsequent wind turbines in order to complete the Project after the test period.

The Test Turbine will be located at XXXXXXXXXX . It is anticipated that the Test Turbine will be commissioned and enter into service before the end of XXXXXXXXXX .

XXXXXXXXXX .

The Corporation will receive all revenue from the generation of electrical energy by the Project.

Natural Resources Canada ("NRCan") has reviewed the application for a technical opinion on the Test Turbine (the "Application"; NRCan file number XXXXXXXXXX ).

It is our understanding, based upon representations and information provided on behalf of the Corporation in the Application, that:

(i) at least 50% of the capital cost of the depreciable property to be used in the Project would be the capital cost of property that is described in either Class 43.1 or 43.2 of Schedule II to the Regulations or that would be such property but for subsection 1219(1) of the Regulations;

(ii) the Test Turbine will be a fixed location device that is part of a wind energy conversion system that would, but for section 1219 of the Regulations, be property of the Corporation that is described in subparagraph (d)(v) of Class 43.1 of Schedule II;

(iii) the Project will not share with any other project a point of interconnection to an electrical energy transmission or distribution system;

(iv) the primary purpose for installing the Test Turbine is to test the level of electrical energy produced by the Test Turbine from wind at its place of installation;

(v) no other test wind turbine (as defined in subsection 1219(3) of the Regulations) will be installed within 1,500 meters of the Test Turbine;

(vi) no other wind energy conversion system will be installed within 1,500 meters of the Test Turbine until the level of electrical energy produced from wind by the Test Turbine has been tested for at least 120 calendar days; and

(vii) the electrical energy produced from wind by the Test Turbine will not exceed 20% of the planned nameplate capacity for the Project.

Our Opinion

Provided that:

(a) the Project will be undertaken as described in the Application with the Test Turbine being installed and used for the testing program described therein; and

(b) the facts and representations relating to the Project remain as stated in the Application and as described herein

it is our opinion that the Test Turbine will constitute a test wind turbine for purposes of subsections 1219(1) and (3) of the Regulations at the time the wind energy conversion system that it forms part of would, but for section 1219 of the Regulations, be property included in either subparagraph (d)(v) of Class 43.1 or paragraph (b) of Class 43.2 of Schedule II to the Regulations. In other words, the cost of the Test Turbine will not qualify as a "Canadian renewable and conservation expense" ("CRCE"), as defined in subsection 66.1(6) of the Income Tax Act (the "Act"), until such time as it is commissioned and enters into service.

Our Comments

(I) Except as expressly stated, our opinion does not imply acceptance or approval of any income tax implications relating to the Project. XXXXXXXXXX .

(II) CRCE does not include any amount that is paid or payable to a person or partnership with whom the taxpayer does not deal at arm's length.

(III) Pursuant to paragraph (g.1) of the definition of "Canadian exploration expense" ("CEE") in subsection 66.1(6) of Act, expenses incurred by a taxpayer that qualify for inclusion in CRCE will be included in the taxpayer's CEE. Consequently, a taxpayer that qualifies as a "principal-business corporation" ("PBC", as defined in subsection 66(15) of the Act) may be able to renounce amounts, in respect of the CEE incurred by it, to an investor that has acquired a "flow-through share" (also as defined in subsection 66(15) of the Act) in its capital stock. However, amounts may only be renounced to a particular investor in respect of CEE incurred by the PBC on or after the date the agreement in writing relating to the acquisition of the flow-through share was made.

(IV) Pursuant to subsection 66(12.66) of the Act, qualifying expenses incurred by a PBC in a particular calendar year may be deemed, in certain circumstances, to have been incurred by the PBC on the last day of the immediately preceding calendar year (this provision is generally referred to as the "look-back rule"). Where a PBC renounces CEE pursuant to subsection 66(12.6) of the Act having reliance on the look-back rule to an investor who has acquired a flow-through share of the PBC, it will be subject to tax under Part XII.6, as determined under subsection 211.91(1) of the Act.

(V) Where the amount of CEE that a PBC has renounced relying on the look-back rule exceeds the actual amount that it is entitled to renounce due to its failure to incur sufficient CEE in the next calendar year, the PBC must file form T101B with the Minister of National Revenue on or before March 31 of Year 3 (with Year 1 being the year in which the agreement to issue the flow-through shares was entered into) and must apply the excess fully to reduce one or more of the renunciations.

(VI) Except for the purpose of Part XII.6 of the Act, any amount that has been renounced to any person will be deemed under paragraph 66(12.73)(d) of the Act, after the form T101B is filed, to have always been reduced by the portion of the excess identified therein in respect of that renunciation.

Yours truly,

for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

c.c. T.J. Jewett

Class 43.1/43.2 Secretariat,
Industry Group,
CANMET Energy Technology Centre- Ottawa
Natural Resources Canada
Bells Corners Complex, Building 3, Room 204
1 Haanel Drive
Nepean ON K1A 1M1